TaxTMI 
TaxTMI 
2016 (11) TMI 730
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....gal firm situated in UK. As per the agreement, withholding tax @20% on gross amount amounting to US $ 9329.72 was the liability of the assessee which was duly deposited. Subsequently, the assessee filed an appeal u/s 248 before CIT(A) and contended that the impugned payment was not liable to be taxed in India as per the Treaty provisions and also as per domestic laws hence there was no liability to deduct tax at source in respect of this payment. These contentions were considered but dismissed by CIT(A) on the ground that no new source of income ever came into existence by obtaining these legal services and hence the impugned payment constitute 'Royalty' / 'FTS' as per Section 9(1)(vi)/(vii) of the Income Tax Act. Further, impugned payment constitute royalty as per Treaty provisions on the ground that assessee is provided with specialized knowledge, skill and experience in the field of regulatory norms prevalent in the US which can be utilized independently by the assessee on his own without recourse to the service provider. Finally, CIT(A) concluded that impugned payment are taxable both under domestic laws as well as under the Treaty provisions. Aggrieved, by the stand of CIT(A),....
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....)(vii)(b). Moreover, the impugned payments get covered under Treaty Article 13 and Article 15 applies only to individual service provider and not to firms and hence taxable both under domestic law as well as under Treaty provisions. 4. We have heard the rival contentions are perused the material of record. The facts are not in dispute. First of all, it would be prudent to reproduce the nature of services being obtained by the assessee from the foreign attorneys as contained in letter of engagement dated 14/02/2010 issued by the legal attorneys 'M/s. Reed Smith' :- "This will confirm that Kotak Mahindra Bank Limited ("Kotak") has engaged Reed Smith to act as its special counsel in connection with the possible acquisition of a U.S. national bank located in Chicago, Illinois and related regulatory matters ("Project Lake"). As agreed with you, whilst this letter has, at your request, been addressed to Kotak, the terms of our engagement as set out in this letter and our Standard Terms and Conditions of Engagement ("the Standard Terms",) as adapted, shall also apply to the entity in the Kotak Mahindra Group nominated by Kotak to undertake the proposed acquisition. The contents of this ....
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....g paragraph, the payment has been made with a view to carry on business outside India and create a new source of Income outside India, and therefore, these payment falls within the exceptions of Section 9(1)(vi) / (vii) and accordingly, not taxable under the domestic law. Similar view has been taken by coordinated bench of Mumbai Tribunal in the case of Income Tax Officer (International Taxation) Vs. Bajaj Hindustan Ltd. (ITAT Mumbai)(supra) which reads as follows:- "Thus the assessee was contemplating to create a source for earning income outside India. It is no doubt true that the source of income has not come into existence. But there is nothing in sec. 9(1)(vii) clause (b) of the Act, to show that the source of income should have come into existence so as to except he payment of fees for technical services. The expression used is "for the purpose of earning any income from any source outside India." There is nothing in the language of sec. 9(1)(vii) clause (b) of the Act, which would go to show that the same is restricted to only to an existing source of income. We therefore agree with the conclusion of the CIT(A) on this aspect. We therefore uphold the order of the CIT(A) h....
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....the meaning of Article 5 of the DTAA. * We do not have any office or establishment or fixed place of business in India. * No partner from our firm was, or will be, present in India for more than 90 days during the year." The above facts are nowhere disputed / confronted by the revenue and there is no adverse material on regard in this respect. Therefore, the payment in question do not get covered by Section 9(1)(i) due to the fact that the payee has neither business connection in India nor any permanent establishment in India. 7. The next argument relates with applicability of relevant article of Treaty. Article 13 deals with 'Royalty and Fees for Technical Services' whereas Article 15 deals with 'Independent Professional Services'. The AR has contended that Treaty Article 15 being more specific in nature applies to the present case. Article 15 reads as follows: "ARTICLE 15 Independent Professional Services 1. "Income derived by an individual, whether in his own capacity or as a member of a partnership, who is a resident of a contracting state in respect of professional services or other independent activities of a similar character may be taxed in that state. Such inco....
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....for 'carry forward and set off of business losses' in general, whereas Section 73, reproduced earlier in this order, deals specifically with 'losses in speculation business'. As to the question that which of these legal provisions will govern the principles regarding carry forward and set off of speculation losses, I find guidance from the principle 'generalia specialibus non derogant' which lays down that the general provisions will not override the specific provisions. In other words, provisions of Section 73, which specifically deal with speculation business, cannot be derogated by the provisions of Section 72 of the Act which deals with business losses in general. As observed by Hon'ble Supreme Court in the case of Union of India and Anr. v. India Fisheries (P) Ltd. (1965) 57 ITR 331 (SC). "If there is an apparent conflict between two independent provisions of law, the special provision must prevail". This principle is described in Sampat Iyengar's Commentary on Law of Income-tax (9th Edn., Vol. 1 p. 48) as follows: 'The general maxim is generalia specialibus non derogant, that is general things will not derogate from special things. The m....